Question 1

Since adopting the euro, all member nations have realized a significant reduction in unemployment rates.

Accepted Answer

A) True 
 B)False  False

Question 2

List and explain the three attributes of the "ideal"currency. Why are these referred to as "the impossible trinity"?

Accepted Answer

The first attribute is exchange rate stability (ERS). With ERS the value of a currency would be fixed relative to other major currencies, thus assuring traders of relatively stable values and reduce the uncertainty of floating exchange rates and uncertain values. The second attribute is full financial integration (FFI). With FFI, traders would be willing and able to move funds from one country to another in response to economic opportunities or risks. Finally, we have monetary independence (MI). With MI, each country is free to set domestic interest rate and monetary policies to pursue economic and political objectives.
Together, these attributes of the ideal currency form the impossible trinity because a nation cannot effect all three characteristics of their currency at one time. A floating exchange rate works for financial integration and monetary independence, but at the expense of exchange rate stability. Stable exchange rates brought on by tight national controls may allow monetary independence, but would then sacrifice full financial integration in the world markets. The bottom line is you can't have all three at once.

Question 3

The Euro currency is fixed against other currencies on the international currency exchange markets, but allows member country currencies to float against each other.

Accepted Answer

A) True 
 B)False  False

Question 4

Because there is now a European Central Bank (ECB), the members of the European Monetary Union have done away with their individual central banks.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following correctly identifies exchange rate regimes from less fixed to more fixed?

Accepted Answer

A)  independent floating, currency board arrangement, crawling pegs 
B)  independent floating, currency board arrangement, managed float 
C)  independent floating, crawling pegs, exchange arrangements with no separate legal tender 
D)  exchange arrangements with no separate legal tender, currency board arrangement, crawling pegs 
A)  independent floating, currency board arrangement, crawling pegs 
B)  independent floating, currency board arrangement, managed float 
C)  independent floating, crawling pegs, exchange arrangements with no separate legal tender 
D)  exchange arrangements with no separate legal tender, currency board arrangement, crawling pegs

Question 6

Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

Accepted Answer

A) True 
 B)False

Question 7

In 1934 the United States ________ the USD from ________.

Accepted Answer

A)  devalued; $20.67/oz to $35.00/oz of gold 
B)  devalued; $35.00/oz to $20.67/oz of gold 
C)  revalued; $20.67/oz to $35.00/oz of gold 
D)  revalued; $35.00/oz to $20.67/oz of gold 
A)  devalued; $20.67/oz to $35.00/oz of gold 
B)  devalued; $35.00/oz to $20.67/oz of gold 
C)  revalued; $20.67/oz to $35.00/oz of gold 
D)  revalued; $35.00/oz to $20.67/oz of gold

Question 8

Which of the following is NOT an argument against dollarization?

Accepted Answer

A)  The dollarized country's central bank can no longer act as a lender of last resort. 
B)  The dollarized country can no longer profit from seignorage (the ability to profit from the creation of money within its economy). 
C)  The dollarized country losses sovereignty over its own monetary policy. 
D)  All of the above are arguments against dollarization from the viewpoint of the affected country. 
A)  The dollarized country's central bank can no longer act as a lender of last resort. 
B)  The dollarized country can no longer profit from seignorage (the ability to profit from the creation of money within its economy). 
C)  The dollarized country losses sovereignty over its own monetary policy. 
D)  All of the above are arguments against dollarization from the viewpoint of the affected country.

Question 9

Emerging Market Country must

Accepted Answer

A)  implement fixed currency regime to substitute the ineffectiveness of its institutions to control the money supply. 
B)  implement free-floating currency regime to qualify for IMF's loan. 
C)  develop institutions and regulations enabling predicable and sustainable monetary policy regardless of the currency regime. 
D)  maintain political influence over its monetary institutions to preserve its national interest. 
A)  implement fixed currency regime to substitute the ineffectiveness of its institutions to control the money supply. 
B)  implement free-floating currency regime to qualify for IMF's loan. 
C)  develop institutions and regulations enabling predicable and sustainable monetary policy regardless of the currency regime. 
D)  maintain political influence over its monetary institutions to preserve its national interest.

Question 10

A small economy country whose GDP is heavily dependent on trade with the United States could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.

Accepted Answer

A)  pegged exchange rate with the United States 
B)  pegged exchange rate with the Euro 
C)  independent floating 
D)  managed float 
A)  pegged exchange rate with the United States 
B)  pegged exchange rate with the Euro 
C)  independent floating 
D)  managed float

Question 11

Members of the International Monetary Fund may settle transactions among themselves by transferring Special Drawing Rights (SDRs).

Accepted Answer

A) True 
 B)False

Question 12

The global recession of 2009/2010 saw the major global economic players (USA, China, and Europe) each choose the same international currency goals from the "impossible trinity". Meaning each felt an independent monetary policy was the most important goal followed by free movement of capital, and third, a policy of free floating currencies.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?

Accepted Answer

A)  National birthrates must be at 2.0 or lower per person. 
B)  The fiscal deficit should be no more than 3% of GDP. 
C)  Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year. 
D)  Government debt should be no more than 60% of GDP. 
A)  National birthrates must be at 2.0 or lower per person. 
B)  The fiscal deficit should be no more than 3% of GDP. 
C)  Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year. 
D)  Government debt should be no more than 60% of GDP.

Question 14

A bank holiday

Accepted Answer

A)  occurs every day after 3:00 p.m. 
B)  is a term used when a country's central government freezes (temporarily) all deposits in commercial banks. 
C)  is observed in Europe every fourth Friday. 
D)  occurs the last three working days of the year to prepare financial statements for tax purposes. 
A)  occurs every day after 3:00 p.m. 
B)  is a term used when a country's central government freezes (temporarily) all deposits in commercial banks. 
C)  is observed in Europe every fourth Friday. 
D)  occurs the last three working days of the year to prepare financial statements for tax purposes.

Question 15

If exchange rates were fixed, investors and traders would be relatively certain about the current and near future exchange value of each currency.

Accepted Answer

A) True 
 B)False

Question 16

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

Accepted Answer

A)  Fixed rates provide stability in international prices for the conduct of trade. 
B)  Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate. 
C)  Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies. 
D)  Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses. 
A)  Fixed rates provide stability in international prices for the conduct of trade. 
B)  Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate. 
C)  Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies. 
D)  Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses.

Question 17

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was

Accepted Answer

A)  £4.8665/$. 
B)  £0.2055/$. 
C)  always changing because the price of gold was always changing. 
D)  unknown because there is not enough information to answer this question. 
A)  £4.8665/$. 
B)  £0.2055/$. 
C)  always changing because the price of gold was always changing. 
D)  unknown because there is not enough information to answer this question.

Question 18

Which argument is true about Chinese Renminbi?

Accepted Answer

A)  is preferred currency for international trade accounting for over 50% of all foreign trade settlements 
B)  is traded under fixed regime on China Onshore Market, but floating on its Hong Kong Offshore Market 
C)  is traded at the moment under managed float within +/- 1% against the US dollar parity rate set by People's Bank of China 
D)  has been constantly depreciating against the US dollar over the last 20 years 
A)  is preferred currency for international trade accounting for over 50% of all foreign trade settlements 
B)  is traded under fixed regime on China Onshore Market, but floating on its Hong Kong Offshore Market 
C)  is traded at the moment under managed float within +/- 1% against the US dollar parity rate set by People's Bank of China 
D)  has been constantly depreciating against the US dollar over the last 20 years

Question 19

Special Drawing Right or SDR is

Accepted Answer

A)  global reserve asset created by IMF to replace the national currencies. 
B)  international reserve asset created by IMF to supplement existing foreign exchange reserves. 
C)  weighted average of four major currencies plus the currencies of the BRICs countries. 
D)  none of the above 
A)  global reserve asset created by IMF to replace the national currencies. 
B)  international reserve asset created by IMF to supplement existing foreign exchange reserves. 
C)  weighted average of four major currencies plus the currencies of the BRICs countries. 
D)  none of the above

Question 20

In January 2002, the Argentine peso was officially valued at a rate of Peso 1.40/USD. More recently the exchange rate is Peso 3.10/USD, thus, the Argentine peso ________ against the U.S. dollar.

Accepted Answer

A)  strengthened 
B)  weakened 
C)  remained neutral 
D)  all of the above 
A)  strengthened 
B)  weakened 
C)  remained neutral 
D)  all of the above

Since adopting the euro, all member nations have realized a significant reduction in unemployment rates.

List and explain the three attributes of the "ideal"currency. Why are these referred to as "the impossible trinity"?

The Euro currency is fixed against other currencies on the international currency exchange markets, but allows member country currencies to float against each other.

Because there is now a European Central Bank (ECB), the members of the European Monetary Union have done away with their individual central banks.

Which of the following correctly identifies exchange rate regimes from less fixed to more fixed?

Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

In 1934 the United States the USD from .

Which of the following is NOT an argument against dollarization?

Emerging Market Country must

A small economy country whose GDP is heavily dependent on trade with the United States could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.

Members of the International Monetary Fund may settle transactions among themselves by transferring Special Drawing Rights (SDRs).

Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?

A bank holiday

If exchange rates were fixed, investors and traders would be relatively certain about the current and near future exchange value of each currency.

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was

Which argument is true about Chinese Renminbi?

Special Drawing Right or SDR is

In January 2002, the Argentine peso was officially valued at a rate of Peso 1.40/USD. More recently the exchange rate is Peso 3.10/USD, thus, the Argentine peso ________ against the U.S. dollar.

Multinational Financial Management: Opportunities and Challenges

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 2: The International Monetary System

Since adopting the euro, all member nations have realized a significant reduction in unemployment rates.

List and explain the three attributes of the "ideal"currency. Why are these referred to as "the impossible trinity"?

The Euro currency is fixed against other currencies on the international currency exchange markets, but allows member country currencies to float against each other.

Because there is now a European Central Bank (ECB), the members of the European Monetary Union have done away with their individual central banks.

Which of the following correctly identifies exchange rate regimes from less fixed to more fixed?

Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

In 1934 the United States ________ the USD from ________.

Which of the following is NOT an argument against dollarization?

Emerging Market Country must

A small economy country whose GDP is heavily dependent on trade with the United States could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.

Members of the International Monetary Fund may settle transactions among themselves by transferring Special Drawing Rights (SDRs).

Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?

A bank holiday

If exchange rates were fixed, investors and traders would be relatively certain about the current and near future exchange value of each currency.

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was

Which argument is true about Chinese Renminbi?

Special Drawing Right or SDR is

In January 2002, the Argentine peso was officially valued at a rate of Peso 1.40/USD. More recently the exchange rate is Peso 3.10/USD, thus, the Argentine peso ________ against the U.S. dollar.

Multinational Financial Management: Opportunities and Challenges

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

In 1934 the United States the USD from .